Super-Economy

Monday, May 27, 2013

This blog is moving to a new location http://www.tino.us/. All the previous posts are avalible at the new adress. For now, I will keep the old site as an archive, but new material will be published in the new adress, so please change your bookmark and RSS-feed. The new site was designed by my talented friends Mansooreh Shahtalab and Hamed Khoramyar at Aivivid. If you have comments on the new design, please share. I think it's an improvement over the old blog, though not quite right yet. I will play around with the design in the future.

Update: New material on new page, including an new article by Assar Lindbeck discussing the economics of immigration.

Assar Lindbeck has been Sweden’s most influential economist during the post-war era, often referred to as “The Nestor of Economics in Sweden”. Lindbeck was a leading member of the Nobel Prize committee 1969-1994. Though a Social-Democrat, he was instrumental in awarding the prize to at the time politically controversial choices Friedrich Hayek and Milton Friedman. Most of the economic reforms that Sweden has carried out in recent decades are based on his “Lindbeck Commission”.In a bombshell interview by Paulina Neuding in the Magazine Neo, he discusses the economics of open borders (in Swedish). Assar Lindbeck points out that it is “clear” that Sweden cannot have open borders, since the welfare state cannot afford the strain of unlimited immigration.

Tuesday, May 14, 2013

Among major Scandinavian cities, Malmö has been affected most by multiculturalism. Approximately 41 percent of Malmös population consists of first or second generation immigrants. This is a fairly recent developement. In 1960 only around 5 percent of Malmö’s population were foreign born, similar number to the rest of Sweden at the time.

The large influx of immigrants makes Malmö a suitable “natural” experiment for investigating the aggregate effects of migration. Libertarians and the left argue that immigration benefits Sweden economically, increasing per capita growth and the standard of living. If this theory is true we should expect Malmö to perform well economically.

Malmö University professor Tapio Salonen has calculated interesting stats about Malmö, which I will in part rely on. For variables such as child poverty, Salonen has corrected for those who commute to and from Malmö (this adjustment only makes a minor difference).

Other than immigration, the most important development in Malmö in recent years is the Öresund-bridge to Denmark and the subsequent integration of the Copenhagen with Malmö. This has benefited the economy and has created a large number of high-skill jobs. Yet despite the new bridge, Malmö has had worse economic performance than Sweden as a whole.

* Tax-base: Peter Santeson has calculated this graph of the tax-base, showing a deterioration of Malmös ability to finance the welfare state. The public sector in Malmö only functions because Malmö is being heavily subsidized by the rest of Sweden.

*
Median Income: According to SCB, median earnings in Malmö were around
the national average in 1991, but have stagnated compare to the rest
Sweden since. While the growth rate of median personal income averaged
1.7% per year in Sweden, it was merely 0.7% in Malmö 1991-2011.

* Earnings of the poor: This graph by Tapio Salonens shows that the real income of low-income earners in Malmö has declined during the last two decades.

* Poverty rate: The relative poverty rate (defined as earning less than 60% of median income) in Malmö was the same as the national average in 1991, but is substantially higher than the national average today.

* Income inequality: This graph by Tapio Salonens shows that income inequality has increased in Sweden and increased faster yet in Malmö.

* Employment: Two graphs by Tapio Salonens illustrate the employment situation in Malmö. The majority of foreign born working age adults in Malmö do not work. (Malmö has lower employment than the national average also when taking commuters into account.)

* Child Poverty rate: Between 1991-2010 the absolute child poverty rate in Sweden declined from about 15% to about 13%. During the same period Malmö’s child poverty rate increased from 25% to 33%. This gives Malmö the dubious honor of having the highest child-poverty rate among Sweden’s 290 municipalities.

* Welfare dependency: According to SocialstyrelsenMalmö ranks second highest in terms of welfare (socialbidrag) per inhabitants among Sweden’s 290 municipalities.

* Crime: According to Brå, during the last decade Malmö has had a homocide rate of around 3.5 per 100.000 inhabitants. This is significantly higher than the Swedish national average, and not far from the American murder rate of 5 per 100.000 inhabitants (thought the statistical definitions are not identical). * Education: Malmö ranks 14th from the bottom in terms of school results among Sweden’s 290 municipalities.

Keep
in mind that the economic disaster outlined above occurred during a
period in which Malmö benefited from the new bridge to Denmark. Without
the bridge things would likely be even worse.

The dismal experience of Malmö undermines the theory that immigration has benefited the Swedish economy. The historical birthplace of the Social Democratic movement increasingly resembles a blighted American city in terms of segregation, poverty, crime and poor economic performance.

Thursday, May 9, 2013

When the common European currency was launched, Milton Friedman predicted with eerie foresight: “Sooner or later,
when the global economy hits a real bump, Europe’s internal
contradictions will tear it apart.”

In 2003, Sweden held a referendum on the issue of joining the EMU. The Swedish elite on both the left and the right virtually uniformly supported joining. The Economist at the time described the referendum as “the people versus the establishment.”

Due to a guerrilla campaign and with a help of a number of independent minded economist (most prominently Lars Wohlin and Nils Lundgren), the people defeated the establishment, saving Sweden from the Eurozone meltdown. Sweden is performing better than the Eurozone countries economically. Key economic indicators from the OECD:

Debt as a share of GDP 2012:Sweden: 38.2%Eurozone: 90.6%The Swedish pubic have soured
further regarding the Euro as they watch the European economy burn down around us every night on the new. Here is a graph of public opinion:

What
is interesting is the reaction of Swedish establishment. Despite the disastrous consequences of the Currency Union, the elites by and large still support Sweden joining the Euro! Parties currently representing 75% of
the seats in parliament officially still support Sweden joining the Euro
(S, M, FP, KD). Strikingly, no Swedish political party has changed its
position on the Euro following the Eurozone economic meltdown.

Opposition
to the Euro is still portrayed as “populism”. Sweden’s Europe-minister
Birgitta Ohlsson describes opposition to the Euro as driven by “fear”.
Political scientists Sören Holmberg argues that opposition to the EU
among the public is due to Swedes being ”opportunistic” and temporarily laying guilt (“skuld”) for the bad times the on the EU.

Opportunistic
means selfishly taking advantage of circumstances and exploiting
others. But who is exploiting whom? Sweden has always been a
net contributor to the EU, paying in far in excess of what we get back.

This
leads to the interesting question, of the definition of
“populism” is. The definition of populism cannot simply be the view of the
populous as contrasted with the view of the elite, regardless of who is
right. I interpret populism as irrational views held by the public as contrasted with more scientific views held by the elite. The self-image of elites is that they have enlightened views, while the public is driven by dark and irrational emotions such as fear of The Other. The role of the elite is therefore to make decisions against the wishes of the masses, and to use its influence in academia and media to gradually alter populist views.

In the case of the Euro however, the Swedish political elite is
ill-informed and wrong and the Swedish public right. The main experts on the
subject, academic macroeconomists, largely side with the Euro-skeptic “populists”.

David Frum writes: “Twenty years ago the leaders of Europe agreed on a bold step: a new currency called the euro. They promised that the euro would improve life for everybody—and denounced all opposition as ignorant, xenophobic, and backward. Their words gained extra plausibility because many of the opponents of the euro really were ignorant, xenophobic, and backward. Yet the backward critics were right, and the enlightened proponents were wrong.”
Indeed, the public is more fact-driven than the emotional elites. In 2003 the
public sided with the economiss such as Milton Friedman who argued that a
common Currency was not good for the economy. The European elites by contrast
were driven by more romantic arguments, such as the myth that without the
European Union western Europe would have been engulfed in war. After witnessing
that the Euro-experiment failed, the Swedish public become more negative
inclined towards the Euro. Occam’s razor is that voters have become more skeptical
toward the Euro as a result of the economic meltdown caused by the Euro, a
reasonable and legitimate conclusion.
In order to undermine Euroscepticism, the media instead describes these
rational cost-benefit concerns in a moralistic, emotional language. Critics
are is described as driven by “fear” and “populism” and “scapegoating” (“skuldbelägger”)
the EU. The purpose of using loaded terms such as “skuld” is to manipulate the reader by adding sinister a normative dimension to factual statements. In contrast to the public, the Swedish political parties did not change their conclusions based on new information regarding the economic performance of the Euro. They have the same view about joining the Euro in 2013 as they did in 2003, new data be damned. Why did facts not change elite conclusions? Because their conclusions were not based on facts in the first place, they were based on emotional sentiment. The philosophy of Birgitta Ohlsson can best be summarized as “EU good, Sweden bad”.

The aim of the Swedish establishment is increasingly to move public discourse away from logic and facts and Logos (where they will lose the debate) and to emotions and morality and Pathos (where the public can more easily be manipulated). This is not being enlightened, it’s the exact opposite.